With oil prices near $60 a barrel, some savvy investors are
betting that there must be a few attractive alternatives out there.

Until recently, many investors ignored alternative-energy
companies. Traditional energy giants were racking up profits, reducing the need
to look elsewhere. And companies with ambitious plans to develop cheaper or
cleaner alternatives were often disappointments. Shares of many of these
companies can be too puny for major mutual funds or hedge funds to consider, or
are quite volatile.

But with energy prices sky-high, shares of some companies
involved in alternative-energy sources, or with improving existing sources, are
looking more attractive. Experts have long argued that if energy prices stay at
elevated levels for an extended period, consumers and companies will begin
switching to alternatives, as costlier energy sources become more feasible.

The safest way to play alternative energy is through larger
companies boosting their focus on the area, such as Sasol
Ltd., a South African oil and natural-gas company with a market valuation of
almost $19 billion. Sasol long has had a major business taking low-grade coal
and converting it to liquid fuels. But Sasol now is a leading company focusing
on converting natural gas into high-quality, low-sulfur diesel fuel -- part of
an effort called gas to liquids, or GTL. Sasol expects to launch the world's
largest GTL facility in January.

While others are examining the GTL market, Sasol is considered to
be ahead of the game. Along with its partners, Sasol expects to produce as many
as 500,000 barrels a day in the next decade, up from around 40,000 barrels a day
today.

Sasol shares are up about 90% in the past year, helped by the
recent strength of the dollar. Sasol gets most of its revenue in U.S. dollars,
so it is something of a bet on the greenback and against the South African rand.
But shares still trade at less than 12 times earnings expectations for the next
year, lower than some giants like Exxon
Mobil Corp. though higher than Chevron
Corp. and some that operate in emerging markets.

The GTL business may allow Sasol to grow at a faster clip than
its rivals, which makes the stock look reasonably priced, argues Tim Flannery,
portfolio manager at FrontPoint Partners LLC, a Greenwich, Conn., hedge fund
that owns some Sasol shares.

In 4 p.m. composite trading on the New York Stock Exchange,
Sasol's American depository receipts were up 39 cents at $27.47.

FPL
Group Inc. is among the companies making a big bet on wind-powered energy,
which accounts for about 1% of U.S. consumption currently but could reach as
high as 4% or 5% in the next decade, some investors say, if energy prices stay
high and governments around the globe continue to provide incentives to
companies to switch to cleaner wind-produced energy.

FPL, which sells electricity through its Florida Power &
Light unit and has a $16 billion market valuation, is involved in wind energy
through its FPL Energy unit, the largest operator and developer of wind farms
and turbines in the U.S. Its 45 U.S. wind facilities command an estimated 40% of
the country's wind market.

There is reason for caution on the stock, however. FPL, which was
at $41.57 in 4 p.m. composite Big Board trading, is more expensive based on
expected earnings than many of its utility rivals, and the wind business might
not provide substantial earnings for a number of years. Wind provided about 25%
of FPL Energy's generating capacity last year, and the unit contributed roughly
20% of earnings.

Still, General
Electric Co. is pushing into the market for producing and maintaining wind
turbines. Revenue from wind power likely will top $2 billion this year, up from
$500 million three years ago, according to Mark Little, vice president for power
production. Revenue could hit $4 billion in the next few years, as GE's
technological expertise helps to drive down the cost of turbines.

A few weeks ago, investment bank Goldman
Sachs Group Inc. completed the purchase of Houston-based Zilkha Renewable
Energy, which develops and constructs wind-energy facilities. Goldman also is
boosting its wind-related advisory and investments business.

Given the size of the companies, the problem with focusing on GE
(which traded at $35.72 at 4 p.m. on the NYSE), or Goldman (which was at
$102.47) or other major companies pushing into alterative energy is that even if
they hit a gusher with these businesses, the profits are unlikely to send shares
surging.

That is why some more adventurous investors are focusing on
stocks like KFX
Inc., a company aiming to take inexpensive, water-laden, low-grade coal and
convert it into high-quality -- and much more expensive -- coal. For two
decades, KFX has been working on technology to take Western U.S. coal that sells
for about $6 a ton, clean it up and make it more comparable to more-expensive
Eastern coal. The process is expensive, but with Eastern coal rising to about
$60 a ton lately, and tax credits rewarding the use of this kind of coal, KFX
has become a darling of hedge-fund traders, with shares on the American Stock
Exchange soaring to about $14 from $6 or so since August. KFX expects to start
converting coal later this year. Hedge-fund firms including Eastbourne Capital
Management LLC, Ritchie Capital Management LLC, Kingdon Capital Management LLC,
and Perry Corp. were among the bigger holders of KFX at the end of the first
quarter, according to securities filings.

"They've been at it for years and a lot of people don't believe
their story, but we've put the time into it and we think the technology will
work," says Eric Sippel of the $2 billion hedge fund Eastbourne, the largest
holder of KFX at the end of the first quarter.

But there are those who are skeptical that KFX will be able to
convert low-grade coal and sell it in the quantities that bulls expect. Some are
shorting, or betting against the price of KFX shares, doubting that utilities, a
conservative bunch, will agree to buy the cleaned up coal. About 25% of KFX
shares have been sold short.

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